Assume the following facts about a firm: $\begin{array}{lr}
\text {Antulal cost to maint ain a lock box }&\$1,500\
\text {system Cost to processs each check }&\$0.15\
\text {Average amount of each check received }&\$1,500\
\text { Number of checks received per year}&4,000\
\text { Interest rate on borrowed funds}&8.0\%\
\end{array}$
Would a lock box system that reduces check clearing time from six to three days be justified?
A) Yes, because it would save more than $1,800 annually.
B) No, because it would cost $2,100 annually.
C) Yes, because of the additional convenience of a shorter clearing time.
D) Indifferent, the cost and expense are about the same.

Question

Assume the following facts about a firm: $\begin{array}{lr}
\text {Antulal cost to maint ain a lock box  }&\$1,500\
\text {system Cost to processs each check }&\$0.15\
\text {Average amount of each check received }&\$1,500\
\text { Number of checks received per year}&4,000\
\text { Interest rate on borrowed funds}&8.0\%\
\end{array}$
 Would a lock box system that reduces check clearing time from six to three days be justified?
A) Yes, because it would save more than $1,800 annually.
B) No, because it would cost $2,100 annually.
C) Yes, because of the additional convenience of a shorter clearing time.
D) Indifferent, the cost and expense are about the same.

Quizplus · Accepted Answer

The lock box system would save the firm $0.15 x 4,000 x 3 = $1,800 annually in check processing costs. The cost of maintaining the lock box system is $1,500 annually. Therefore, the lock box system would save the firm $1,800 - $1,500 = $300 annually.

Assume the Following Facts About a Firm Would a Lock Box System That Reduces Check Clearing Time